At a Glance

The debt snowball method can keep you motivated to pay off your balances and become debt-free. This article will go over details of the snowball method, and how you can use it to start paying off debt today:

What is the debt snowball method?

The debt snowball method is a strategy to reduce debt. It focuses on paying off debts in order of smallest to largest. The name comes from the idea that you gain momentum (like a snowball) as you knock your debts off one at a time. You’ll focus on paying off your smallest debt first while continuing to make minimum payments on your other balances.

Once the smallest balance is paid off, you’ll take the money you were allocating to that debt and put it toward the next smallest balance. The cycle repeats until all debt is paid in full.

5 steps of the debt snowball method

Debt snowball example

Here is an example of how the debt snowball method would be put to practice. Let’s say you have a total debt of $48,200, broken down as follows:

  • Auto loan: $20,000, 5% APR, $400 minimum monthly payment
  • Credit card: $6,200, 18%, $185
  • Personal loan: $12,000, 19%, $220
  • Student loan: $10,000, 7%, $100

You would start focusing on paying off the lowest balance first, so putting as much toward the credit card balance of $6,200 as possible, while paying minimums on your other debts. Then the cycle would continue with the student loan balance, personal loan balance, and finally, the auto loan balance.

Let’s say you are able to put an extra $300/month toward debt repayment. You would be debt-free in 50 months and pay a total of $11,564.24 in interest.

Debt Snowball Payoff Calculator

Try our debt payoff calculator to pay off your debt faster and save money on interest.

What to include in the debt snowball

Include any outstanding debts, with the exception of your mortgage payments which aren’t included in the debt snowball. Debt is considered as any money you owe to someone else.

Debt snowball best practices

Here are a few best practices to keep in mind as you begin the method:

  • Find a side hustle. Try making extra money any way you can, whether that be hosting a garage sale or taking on a side job.
  • Don’t take on any new debts, as this will only set you back farther in your goal.
  • See what expenses you can cut back on, such as making coffee at home instead of buying it out.

Debt snowball pros

The main advantage of the debt snowball method is that it is very encouraging. You’ll feel confident as you knock out your debt, which can keep you motivated to stick with the plan. You only have to focus on one debt at a time, instead of feeling overwhelmed by your total debt as a whole.

Debt snowball cons

The main disadvantage of the method is that there’s a chance you’ll pay more on interest than if you used a different type of debt elimination strategy. By focusing on the smallest amount of debt rather than the debt with the highest interest rate, you’ll still be stuck paying off that interest, which will only increase with time.

If you’re concerned about the amount of interest you’re paying, take some time to make a list of your APRs and interest rates. If they seem very high, consider another method, such as the avalanche method, which focuses on paying down your balance with the highest interest rate first.

How to stay out of debt

Once you’ve paid off your debt, here are a few strategies to help you stay out of debt for good:

Request alerts from your credit card company

Spending alerts can tell you when charges are made to your account, keeping you informed, accountable, and less likely to overspend in the future.

Pay with cash and debit

Making purchases with cash or debit keeps you more aware of how much money is coming out of your account. Credit cards can cause you to spend more than you would otherwise, sometimes money you don’t really have.

Create a budget

Budgeting helps prioritize your necessary expenses and avoid unnecessary purchases that could land you in debt. Keep track of income and expenses, live within your means, and stay debt-free.